Read This Now

No catchy title to this update. I just want you to read and ponder this post. Then, plan your trades accordingly.

Let's start with silver where the technical picture is more clear, at least in the traditional sense. Take a look at the chart below:

I've shown this chart several times in the past week so it should look familiar. Something new caught my eye today. Have you seen the new OI numbers? Our friend, "Tesla" has taken it upon himself to update the comments section with the latest numbers each afternoon. (Thanks, Tesla!) Keep in mind that the OI numbers are always basis the close yesterday. So, today's numbers show us the OI from Monday. That said, the number is once again amazingly low at 112,795 contracts. Again, as a reference, the OI in late April was approaching 150,000. Fully 20-25% more! Now stick with me on this. Maybe I should lay this out chronologically to make it easy to follow? OK, here goes:

1) Since silver bottomed around $34 in early July, the channel I've drawn has contained price.

2) Note that on two occasions, 7/13 and 8/19 (points 1 and 2 on the chart), silver decisively broke through the mid-line and proceeded to move sharply toward the top line.

3) Total OI on 7/13 was about 113,000 contracts. By the peak on 8/5, it had risen to about 119,000.

4) Total OI on 8/19 was nearly 116,000 contracts. At least week's peak, it had risen to nearly 122,000.

5) Today's OI is all the way back down below 113,000.

6) Look closely. Price once again sits poised to burst through the mid-line, which is near $42.

Conclusion: Watch price and OI very closely for the next 48 hours. IF silver accelerates through $42 on rising open interest, there is a very high likelihood that it is once again making a move toward the top of the channel. A move that corresponds in magnitude to the previous two would take silver to 45.50-46.00, perhaps as early as next week.

Now let's move on to gold. When I say it's not as "traditional" technically, it's because I'm using this crazy, reverse pennant as a forecasting tool. I'm not sure you're going to find the "reverse pennant" in any books about TA but I'm quite sure that none of those books ever anticipated the end of the dollar, either.

Similar to silver, gold currently sits very close to the midline of the pattern. Note that the previous two occasions when gold broke through the midline (mid July and early August), gold proceeded to ride the upper trendline for about two weeks before falling back. IF gold can once again break through the midline, it will likely charge toward the top line again. This would take the price to near $2000. The OI numbers in gold are similar to silver, too. After peaking at 532,000 last Monday, total OI as of yesterday is all the way back to 501,000. A drop of almost 6% in one week!

Conclusion: We may be on on the verge of another massive rally in gold. Your signal will first be a move through yesterday's high of 1841.50 and then a burst through the midline, currently in the area around 1850. Should gold move conclusively through 1850, it should move to new highs in relatively short order and then continue to make new highs through mid-September.

WARNING: Don't go getting overly excited and carried away at this moment. Nothing is pending until the metals break through those midlines. The open interest numbers suggest that the breakthroughs will come in the next 24-48 hours. They may not. If they don't, I will continue to monitor these charts until they do.

I feel that this is pretty important info so I plan to leave it up all night as the lead, above-the-fold story. I will probably leave it up tomorrow, too. Be sure to refresh the homepage from time to time if you're looking for updates as they will be attached as addenda to this post. TF

9:15 EDT UPDATE:

Sort of a bland trade this morning. The metals tried to rally overnight but they were beaten back at the regular, appointed hour of 3:00 am EDT. It appears, at this moment, that the metals will struggle to trade higher today. 1841.50 is still acting as a resistance point for gold and silver has yet to reach 42, yet alone 42.30. Let's just sit back and watch and see what the day brings us.

A couple of other things...First, this silver update from GoldCore via ZH is worth your time:

Second, a friendly reader sent me this chart of the open interest in silver since March. I have neither the time, inclination or technical know-how to superimpose the actual price of silver onto this chart. However, it would probably be a rather insightful thing to do. Anyone want to take a stab at it?

That's all for now. TF

10:50 EDT UPDATE:

This is certainly something to watch over the next hour or so.

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620 Comments

My opinion? No the Comex will not go bust anytime soon. And no there will not be a shortage anytime soon. And yes there will be 'final warnings' from everyone every-single-day. Just BTFD, not sound cliche, but I am with you.. Waiting for silver to do something is like having an invert boyfriend at the drive-in on a first date. It WILL annoy the hell out of you - I know this, because it annoys me. Especially those that cry wolf 20 times a week that the sky is falling. It's a mathematical certainty that the Comex will eventually default, and likewise that a shortage in all bullion metals will come though. Sooner rather than later. IMO not in the next few weeks though ;)

I was thinking the same thing just before reading your post. I do not think the EE dropped silver from $42 today. People are trying to be smart/greedy and make a few extra percentage points. I think the stop limits just kicked in at $42 and we get a drop. I have tried that game. Started out winning, and then got my ass handed to me, being tripped out of a trade and then struggling to get back in at a higher price and eating the brokerage fees.

Now I am just buying the dips and sleeping better. Be right, and sit tight! The funny thing I had to realize that I was never 'scared' of silver crashing, I was always scared while not holding my position. Now I buy paper on the dips, buy the physical on credit on the weekends (when I have time to go into the VBE), then cash out the paper AFTER buying the physical when the bill comes in the mail.

If you truly believe in the fundamentals (I do, and fundamentals will EVENTUALLY win over manipulation) this strategy gets you a good price and a good sleep at night.

BTW, I DO believe the EE does 'attack' silver (beginning of May, options expiration, etc) but I do not beleive the EE attacks silver on a daily basis. Just 'smart' traders fighting with themselves adding risk for a few more percentage points.

Massive refinancing cause mortgages to be paid early. The old mortgages are paid for, causing the Fed's balance sheet to shrink significantly. The new mortgages are held by Freddie and Fannie, making them bear any losses from future defaults or interest rate increases. After the reduced balance sheet, the Fed is free to do another few hundreds of billion dollars of QE to get their balance sheet back to what it was.

Wow that Silver Shield guy got pretty dramatic in that You Tube! video. I thought I was bullish on silver. That guy basically is saying that if you don't buy it you will be left behind. Period. End of story.

Billy Stinson comforts his daughter Erin Stinson as they sit on the steps where their cottage once stood on August 28, 2011 in Nags Head, N.C. The cottage, built in 1903 and destroyed by Hurricane Irene, was one of the first vacation cottages built on Albemarle Sound in Nags Head. Stinson has owned the home, which is listed in the National Register of Historic Places, since 1963. "We were pretending, just for a moment, that the cottage was still behind us and we were just sitting there watching the sunset," said Erin afterward. (Scott Olson/Getty Images)

I get into a lot more detail/concept in the beginning of that thread and some of it was in another post that spilled into CA's forum from that point forward.

My basic concept is that because the Fed. can do so, they will print as much as they need to while still the reserve currency. They already plan on buying as much of our Treasury debt as possible so we don't have to pay ourselves back or they can just forgive the Treasury debt and write it off of their books. (The accounting stuff that is going on is crazy anyway. There's a reason they won't do a audit). We own about 70-75% of our own debt. China and others have about 25-30%. maybe less then that. We have no intention of paying ourselves back. What would be the point? Think about it.

I believe the Fed. will underwrite every single new mortgage there is and they will in essence qualify just about anyone that has a pulse so that all of the real estate on the market can be cleared and priced however low it has to be to be moved into a new homeowners hands who will pay a 30-50 year mortgage off at very low rates.

The Fed will of course have some "new" quasi govt. agency (fannie/freddie like) that they will create just for this program. All of the mortgages, where ever they may be originated from (banks) will be backstopped by the Fed. and essentially guaranteed that they won't get stuck with the mortgage. The Fed. ultimately gets the payments from everyone for supplying the money/credit and guaranteeing them against loss. Everyone will make money on this one to some degree that is involved in the chain of transactions that will occur from this. The Fed. gets all the loot and essentially holds title via the newly created mortgages they created from newly created money.

The Fed. doesn't need to worry about the losses because they feel they can just print more money or credit and keep it off the balance sheet (that no one can see, ever.)

The Fed. can endure a unlimited amount of losses (as we have evidenced) and create as much paper credit (gaurantee the mortgages) as they want have no intention of paying ourselves back. What would be the point, again?

If people embrace the concept of principal reductions (I'm sure they will) and super low rates or houses that are sudddenly available that were out of reachand expensive before and they now have access to credit then I think the response will be overwhelming. So to will be the money printing.

The Fed can create a paper mortgage document from thin air and receive a revenue stream for many, many years. I don't think it would take much for the Fed. or the Govt. to take total deed and ownership of any property whose documentation or clear title is in question. The Fed. can probably just gaurantee the title clear and free by decree I would imagine at this point the way things are going at this rate were in desperation mode and it's obvious.

If anyone thinks that the Gov.t or Fed. doesn't have such powers to do such drastic things with land or properties, I would remind you of eminent domain..

CA's forum has more thoughts as they evolved.

A much, much smaller mortgage payment makes the prospect of accepting a lesser paying job then usual a bit more palatable and I think we would see people re-enter the work force taking lesser paying jobs. This is what they hope for and this is how they can accomplish some wage compression also from what seems like a great re-fi opportunity but in reality is a desperation move by the Govt..

thank you for your detailed explanation. I agree that things are going in the direction you are pointing. What are the steps you think are needed to prepare for that? Accumulate dry powder and borrow massively on liquidation sale of REs?

Thanks for taking the time out to share a broader perspective, with constructive criticism directed in a positive way. If more conversations where structured in such a way, I would imagine the world would be a better place. Maybe you could talk to some of your fellow adults and have them work things out this way (hehe, my gripe on "experience").

I admire your ability to take constructive criticism positively as it adds depth to your character. I am not really sure what you meant with the last sentence but I get the gist.

Investment advise better be good if your giving it. What you think today about markets/charts/fundamentals will not be the same in ten years because you will be seasoned. I am so glad that some of my friends and family didn't take my advise 15 years ago. Losing my $$ is okay, but friends and family would be terrible.

However, experience in terms of investing and directions of markets is a different thing. If I indeed am coming off on a soapbox, I apologize as that is not my intent. You are correct in my thirst for knowledge, as it allows for me to to live free from the madness that many call reality. All I seek is awareness to as many aspects of knowledge I can achieve before valuable resources such as the internet are limited... alongside many other freedoms that I do not wish to have stripped in the name of my security.

Agreed on the liberty stuff.

Soapbox was just in reference to your many cautious posts today about NFP and to be careful. Every day is a day to be careful. If your leveraged its a very dangerous game, but I love it!! Most people here are probably not leveraged with futures contracts or stock options and shouldn't give a rats ass about NFP, they should just keep stacking/accumulating shares.

Early in the Turd days, I used to talk a lot about specific miners with little knowledge of how the market worked, and have made a lot of wrong overall calls and hyped them up b/c they "made sense" to me. Since then, I really have not been making specific recommendations as I have been baffled by this nonsense and am learning as it goes too. When I post thoughts down, I post them down for just that... thought.

I have lost a few bucks on miners, mostly junior minors. Thank God no one bought Klondike Silver or Azteca Gold on my recommendation. I too thought I had winners, but really I had a shit ton of nothing.

“A mine is a hole in the ground with a liar at the top".Mark Twain

My main focus really is not the metal prices and investment advice, but to write down my thoughts so others who share similar viewpoints can gain from my perspective, as I have from others. I do not claim to be an oracle, or a seasoned trader, or anything...

I am just as confused as anyone, and am just trying to make sense out of this all. ME too

P.S. -- I have spent a lot of time going down the rabbit hole, and am operating under the thesis that younger people are more prone to understanding the manipulation of the world because of their upbringings upon technology (specifically the internet). I have spent my whole life absorbing all of the information I can get my hands on (with my own developed filter to bullshit). Coupled that with my love for math/statistics and you can see why I am drawn to the Precious Metal Markets.

Not so sure I agree with you about the younger kids these days. I think more play video games than embark on a journey of self discovery via the internet. You are definitely in the minority. I don't think age has much to do with thirst for knowledge. I have very few people in my circle that care about markets, politics and spirituality. They are all amazing people and I love them but they choose not to go too deep into the rabbit hole and that's fine. I think you will find the same. Some people will grow from the new perspective but most will not have attention span for it.

The rabbit hole goes deep and most people will not go as deep as you have gone already. IT's like the Matrix thing, I ate the red pill but most everyone else choose the blue. Ignorance is bliss sometimes. Once you know what really is going on in this world you kinda wish you didn't. It would be easier to watch the newsand drink the kool-aid. Instead, I know they lie. 1984, V for Vendetta its here now all around. I am preaching to the choir now, you know this stuff.

California Lawyer made some great points in the last blog about how the U.S. is perhaps the only country in the world that has never been humbled by defeat. We have been defeated, but curiously we've refused to register those defeats for very long.....For many Americans winning is all that matters, despite the moral bankruptcy that might ensue.

I would also expand this insight beyond military endeavors and say that- in general- the steering of the mass mindset to reject any past or coming defeat as a possibility is due to the employment of a splendidly simple, yet powerful tool: flattery.

Our children are coddled early-on as little gods-in-embryos, not worthy of defeat (just try and coach or referee any high school or children's sport to see what I mean). We "deserve" a break today, we deserve to smell good, to have the attentions of whomever we set our sights on, to have the newest gadget, to not have to wait more than 3 minutes for microwave popcorn, to not be cut off on I-95, to not have to wait in line, to not have to pay any money down on a mortgage, etc.

Arrogance and self-satisfaction are the tended-to commodities that blind us in our demi-god-like status and keep us distracted. If I wanted to cause a child to self-destruct later on, I'd tell him how terrific/awesome/great/super/perfect he was all the time, so that when he did encounter people/situations superlative to his skills sets and abilities, he'd have no frame of reference for the defeat and would have to dismiss it to maintain some level of stasis. It is at this point we succumb to an even greater sales pitch.

As "free" and super-educated/informed as we are told we are, the general populace will still mainly miss the signposts to their doom because of this flattery-- in spite of the obvious perils of this economic plate we're being served.

I swear, if TF gets taken out by the powers that be, I am going to be a very upset trader.

In a land of blatant manipulation, where the big players no what the price of silver and gold will be days and weeks in advance, there was one man who broke from the dark side and joined the rebellion.

I didnt realise it was off the list. What changed with it. It was one of your favourites as per the below? I remember you said you got a stink bid filled at 17c. It is 3c now! But you probably dont want to talk about that...

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DISCLAIMER: The charts and analysis provided here are not recommended for trading purposes. Trade at your own risk. The Turd provides knowledge not direction. Turd holds no liability for your trades and decisions but he's happy to take credit when credit is due, particularly through the "donate" button. Read more...